Term Life Insurance: Auto-Renewal And You

Term life insurance is a type of insurance that offers coverage for a fixed period, typically ranging from 10 to 30 years. Once the policy term ends, individuals have several options to consider, depending on their financial situation, insurance needs, and health status. While some policies may automatically renew annually until a certain age, this renewal often comes at an increased cost. This paragraph introduces the topic of term life insurance renewal and sets the context for further discussion on the options available to individuals when their term life insurance policy comes to an end.

Annual renewable term (ART) life insurance

ART policies are underwritten using the same mortality tables as other life insurance products, but they have some distinct features. ART policies are typically renewed annually through a contract and do not build cash value. The monthly or yearly fees, known as premiums, continue on a one-year contract basis and may increase upon renewal. The insured person does not need to reapply or retake a medical exam to renew the policy, making it a convenient option.

The premium for ART policies is calculated based on the risk of the insured person dying in the current year, and this probability increases as the person ages, leading to higher premiums over time. ART policies have a limit of one year, while level term policies can offer coverage for up to 30 years with a fixed premium rate.

ART life insurance is suitable for individuals or businesses with critical short-term needs. It provides flexibility, affordability (especially in the early years), and simplicity. However, the declining affordability over time due to increasing premiums and the limited coverage time period are some considerations to keep in mind.

In summary, ART life insurance is a short-term solution that offers peace of mind and flexibility but may not be suitable for long-term coverage needs due to increasing premiums.

Convert to permanent life insurance

Term life insurance policies are usually valid for a set number of years, typically 10 to 30 years. Once the policy expires, the coverage ends. However, if you still need insurance, you can consider converting your term life insurance to permanent life insurance.

Permanent life insurance, such as whole life insurance, offers several benefits. Firstly, it provides lifelong coverage, ensuring your loved ones are protected throughout your lifetime as long as the premiums are paid. Secondly, permanent life insurance policies build cash value, which can be withdrawn or borrowed during your lifetime. This cash value grows slowly on a tax-deferred basis, and you can borrow against it or withdraw money. However, unpaid loans and withdrawals will reduce the guaranteed death benefit and policy cash value, and loans also accrue interest.

Converting your term life insurance to permanent life insurance can be advantageous for several reasons. Here are some key points to consider:

• No Medical Exam Required: In most cases, you can convert your term life insurance to permanent life insurance without undergoing another medical examination. This is especially beneficial if your health has deteriorated since you initially purchased the term life insurance.
• Lock in Rates: Permanent life insurance locks in your rates, so you won't have to worry about rate increases. While you will likely pay higher premiums as you have aged, you won't need to worry about future rate adjustments.
• No Need to Change Policies: Converting your term life insurance to permanent life insurance allows you to maintain your existing policy without the hassle of finding a new insurer or applying for a new policy.
• Build Savings: Permanent life insurance allows you to build savings over time, as a portion of the premium goes towards building cash value. This can be beneficial for estate planning and providing financial security for your dependents.
• Lifelong Coverage: If you still need coverage at the end of your term life insurance policy, converting to permanent life insurance ensures you have lifelong protection. This is especially relevant if you have lifelong financial dependents, such as children with special needs.

Before converting your term life insurance to permanent life insurance, it is essential to review the specific terms and conditions of the conversion offered by your insurer. Different insurers have varying rules for converting policies, including time limits, age restrictions, and the types of permanent life insurance policies available for conversion. Additionally, consider seeking advice from financial professionals or insurance agents to ensure you make the best decision for your circumstances.

Buying a new term life insurance policy

• Estimate your sum assured: Consider your current financial situation, including any debts and family members who depend on you. Calculate how much insurance you need to support your loved ones and look for policies that offer the desired coverage.
• Add riders: If you want to increase your coverage, consider adding riders to your policy. These are extra features that provide additional benefits, such as critical illness or disability coverage.
• Compare options: Once you know your desired coverage and any desired riders, compare different insurance providers and their plans. Look at factors such as the claim-settlement ratio, customer experience, solvency ratio, benefits offered, payout options, and online availability.
• Fill out the application: Select the term insurance plan that best suits your needs and fill out the online application form. Provide details about your age, medical history, and lifestyle habits. You may also need to upload documents and undergo a medical test.
• Pay the premium: After submitting your application, pay the premium amount to activate your life insurance coverage.

When buying a new term life insurance policy, it's important to consider the following:

• Age: Premiums for term life insurance increase with age, so purchasing a policy when you are younger can result in lower premiums.
• Health: Your health can impact your premiums. If you are in good health, you may be able to get lower premiums.
• Coverage amount: Determine the amount of coverage you need based on your financial obligations and goals.
• Policy term: Choose a policy term that aligns with your needs. Consider factors such as the financial independence of your children, the time period of your loans, and your desired retirement age.
• Cost: Compare the cost of premiums across different insurance providers and plans to find the most affordable option for your desired coverage.

Let your policy expire

If you don't need life insurance coverage anymore, you can simply let your policy expire. There is nothing you need to do if your policy's term is ending—you will stop paying premiums and you will no longer have coverage.

If you outlive the policy's term, the coverage will expire, and you will no longer have life insurance protection. Because term life insurance pays out a death benefit only if the insured person passes away during the policy term, there will be no payout to your beneficiaries if you outlive the term.

Once the term is up on most types of term policies, you do not get back the premiums you've paid. That's why level term life insurance is so affordable. Much like your auto, pet, or renter's insurance, you pay the premiums and hope you'll never need to use it.

If you've determined that you no longer need coverage, then congratulations! You're living a long, full life, and you're financially very healthy. There's no reason to feel guilty or worried if you're not re-upping your term life insurance coverage. It's meant to hold you over and help financially protect your family when there are little ones in the house and before you've spent years and years saving for retirement and the unexpected.

Renewal premiums

Most term life insurance policies allow for renewal without the need for new underwriting or a medical exam. This can be beneficial if your health has deteriorated during the initial term, as it may be difficult to obtain a new policy. However, the higher renewal premiums may still be unaffordable for some individuals.

If you are unable or unwilling to pay the renewal premium, you have several other options. You can choose to convert your term life insurance policy to a permanent policy, such as whole life or universal life insurance. This will provide coverage for the duration of your life but at a substantially higher price. Another option is to purchase a new term life insurance policy, which may be more affordable if you are still relatively young and healthy. Alternatively, you can simply let your current policy lapse if you no longer need life insurance coverage.

Frequently asked questions